England's footballing heroes fly to Portugal tomorrow ready to pull on the shirts bearing three lions and proud of the honour of representing their country as they try to win Euro 2004.

Yet a row over the players' patriotism broke out last night after it emerged that David Beckham and many of his team-mates are using controversial tax avoidance schemes to minimise the amount they pay the Inland Revenue from the lucrative fees they earn for appearing in TV advertisements for Pepsi, Sainsbury's and other big names.

They will make £200,000 each if they win the tournament, but that sum is dwarfed by the multi-million pound marketing deals involving superstars such as Beckham and Michael Owen. While salaries for actually kicking the ball are taxed normally, this extra source of revenue offers players opportunities for tax avoidance.

An Observer investigation has revealed that Sven-Göran Eriksson's young millionaires are using personal companies to avoid paying fortunes in income tax and national insurance. Some may even be able to claim their haircuts as tax-free 'business expenses'.

Although there is nothing illegal about these schemes and the players are doing nothing improper, MPs called on the Chancellor, Gordon Brown, last night to crack down on the tax loopholes they are exploiting.

Such ruses mean Beckham, England's captain, can cut the tax bill for his company, Footwork Productions, whose turnover last year was £8.7 million. Details obtained from Companies House also show that even Paul Scholes, the unglamorous, camera-shy midfielder, lists £629,000 of assets in the accounts of his firm, Paul Scholes Ltd.

George Foulkes, the former Labour minister who is now the chairman of the Edinburgh footballclub Hearts, denounced the players' fancy financial footwork. 'They are well-paid enough already. They ought to be making a full contribution to the Treasury to help provide vital services for people who are a lot less well-off than them,' he said.

'The people who players get their money from - fans who help pay their salaries, and consumers who buy products they endorse - pay their full whack of taxes, although they earn a lot less.'

Norman Lamb, a Lib Dem MP on the Commons Treasury Select Committee, said: 'They enjoy the glory of playing for England. They should play fair and try not to escape paying tax.'

Lamb will write this week to Brown, who declared war on tax avoidance in his Budget speech last March, asking him if there is an effective way of closing the loophole.

The controversy has arisen because almost all high-profile players now have a personal management company into which they put their earnings for endorsing products such as soft drinks, football boots and video games. These payments are for using the player's 'image rights' - permission to use his name - and not for appearing on the pitch, so income tax and national insurance are often not automatically deducted.

Instead, the fees channelled through the company are treated as company profits, which are subject to corporation tax - as low as 19 per cent for some players. That is in stark contrast to the 40 per cent income tax and 12 per cent national insurance they pay on their club salaries, and it means high-earners can avoid paying tax of several hundred thousand pounds a year.

In addition, some players can use their firms to claim a string of expenses, such as secretarial costs and cars, against profits. Two accountants who have acted as tax advisers to celebrities have told The Observer certain players would also be able to claim back tax on their haircuts, designer clothes, tattoos and body piercings, arguing that their appearance is crucial to their commercial endorsements and is therefore a legitimate business expense.

The turnover last year of Footwork Productions, which describes its purpose as 'the provision of the services of David Beckham', was £8.7m. Beckham's salary was £5.5m. He paid himself a further £1.25m in dividends and almost £1.5m more went on 'admin istrative expenses'. It is unclear from the accounts what tax Beckham himself paid on his £6.75m. But the firm's bill for corporation tax and social security was £853,000. That was just over half the previous year's bill of £1.5m on a far smaller turnover of £3.5m.

Since the last accounts were filed, Beckham has moved from Manchester United to Real Madrid. He resigned as a director of Footwork last December, and his wife Victoria replaced him on the board. Since he now lives in Spain, it is likely he is no longer classed as resident in Britain for tax purposes - allowing him, if he wishes, to channel his celebrity earnings into an 'offshore' jurisdictions such as Jersey or Monaco, where taxes are even lower.

The only other members of the England touring party who may be eligible for this extra benefit are Owen Hargreaves, who plays for Bayern Munich in Germany and is not taxed in Britain, and Eriksson, a Swede who has been criticised in the past over his numerous commercial endorsements, ranging from Cirio pasta sauce to Sainsbury's supermarkets.

Owen, who is featured in TV advertisements for Persil, is the major shareholder in Owen Promotions Ltd. It has assets of just over £2m, including £831,000 in cash, 'freehold land' worth £270,000 and part of a loss-making fast food business.

Other players with personal companies include include Sol Campbell, Steven Gerrard, Ashley Cole, Joe Cole, Gary Neville and Nicky Butt. The company for Frank Lampard - currently starring in Sainsbury's adverts alongside TV chef Jamie Oliver - was registered as 'dormant' last year. But the photogenic Chelsea midfielder has since had a great run of form and is expected to be among this summer's top earners.

One agent representing an array of top Premiership stars stressed that the tax breaks enjoyed by players' personal management companies are perfectly legal. 'Most top players have one for their image rights because that makes it easier to account for, collect and distribute off-field earnings. There are advantages tax-wise to that.'

Mike Warburton of the big accountancy firm Grant Thornton, which advises a number of Manchester United players, defended the arrangements.

'Service companies aren't as useful for saving tax as they used to be,' Warburton said. 'Players tend to set them up on the recommendation of their clubs, who recognise that young men coming suddenly into lots of money need professional advice.'

The 23-man England squad will receive £109,000 each from the Football Association even if they are booted out of Euro 2004 at the first round, and £200,000 per head if they win the final on 4 July. Their tournament earnings come from money the FA has received from its official sponsors, such as Carlsberg and McDonald's, television contracts and qualification fees from Uefa, European football's governing body.

The FA, which receives more than £100m a year from broadcasters and around £50m annually from its sponsors, refused to discuss the players' earnings.

The best a man can get: Top earners

1. David Beckham (Real Madrid)

Advertises: Police sunglasses, Vodafone, Pepsi, Adidas sportswear and football boots, Gillette, Marks&Spencer, Brylcreem, Castrol oil. Earnings: Estimated £15 million a year from sponsors. Paid himself £6.75m last year from profits of his personal management company.